Are these endowments any good?

billy_bulldog

I’ve been browsing this site for a while now and taking advantage of the excellent advice and tips freely given. I now have a specific query of my own, which unsurprisingly is to do with underperforming endowments.

Details of the two in question are as follows:


1st provider: Legal & General

Sum assured: £20,000

Declared bonuses: Not shown on statement

Surrender value: £6,213.84

Monthly premium: £62.77

Maturity date: November 2013

Projections: 4%=£14,200 5.5%=£15,600 8%=£18,300

With profit fund holding 1967 units @ 315p

Life cover including C.I. for Male 36 & Female 36 both non smokers


(For comparison, last years statement looked like this:

Declared bonuses: Not shown on statement

Surrender value: £5,359.15

Projections: 4%=£14,200 5.5%=£15,700 8%=£18,600

With profit fund holding 1791 units @ 308p)





2nd provider: Norwich Union (was a previous CU or CGNU (spelling?) policy before amalgamation)

Sum assured: £17,000

Declared bonuses: £1,531.30

Surrender value: £4,011.20

Monthly premium: £52.49

Maturity date: December 2013

Projections: 4%=£12,200 6%=£13,800 8%=£15,800

Life cover including C.I. for Male 36 & Female 36 both non smokers



The questions I have are:

1. Can anyone give their opinion as to how good these policies are, with regards to either cashing in, selling, having them paid up etc.

2. I still have 96 months left to act, and I reckon I could afford to save £100 each month in an ISA or other savings account and get 4.5 - 5% annual growth myself (with no risk) – is this more effective than chipping away at the mortgage capital with a £100 overpayment each month?

3. Should I invest my £100 each month into something else? I’m just testing the water here, but would something with an equity element (index tracker or unit trust) be a wise proposition at this time?

dunstonh

3. Should I invest my £100 each month into something else? I’m just testing the water here, but would something with an equity element (index tracker or unit trust) be a wise proposition at this time?

Alternative funds may be available with those endowments. Many offer a range of unit linked funds covering a wider range of investment areas. Switching funds, if available, can save a lot of money over the term.

EdInvestor

Hi Billy

billy_bulldog wrote:

Projections: 4%=£14,200 5.5%=£15,600 8%=£18,300
Life cover including C.I. for Male 36 & Female 36 both non smokers

Re the L&G policiy it is a unit linked one with no guaranteed value.If you surrendered it and put it in the bank @4% until maturity also paying in the premiums you should get 15, 169, which is a bit higher than the projection at 4%, the difference paying for the CI and life cover plus the charges.

You could consider switching to other funds which might give a better return, especially if it would cost you a lot to replace the cover.On the other hand if your mortgage rate is higher than 4% you would gain by using the surrender money to reduce the amount owed.

Your second policy looks like one you should keep [We do get such endowments now and again.]

If you cashed this in and put it in the bank @4% it should return around 11,363, which is not only less than the projection of 12,200 at 4% but also way below the guaranteed value of 18,531. Plus you've got the CI and life cover included.I suspect you may also be in line for a windfall from the orphan assets at Aviva in a couple of years' time. So this is one to keep paying into until maturity.

I still have 96 months left to act, and I reckon I could afford to save £100 each month in an ISA or other savings account and get 4.5 - 5% annual growth myself (with no risk) – is this more effective than chipping away at the mortgage capital with a £100 overpayment each month?

It depends on your mortgage rate.If it's higher than the savings interest rate ( net of tax), it's a better deal to pay off the mortgage, assuming there are no penalties to do so.

vicpivo

Be very careful if you are considering surrendering any of the Endowments. By cashing them in early you would lose the Terminal bonus (bonus on maturity).

Also if you consider switching funds, as a general rule the potential for higher returns is always higher risk. If you are unsure of keeping them, do you want to take on additional risk?

Finally you do get life cover, which would be lost if you cash in the plan. Costs for life cover are fairly minimal (unless you have health problems) but should be taken into account when weighing up what to do.

It's a standard response, but consider speaking to a Financial Advisor to look in your policies and personal details in more detail

EdInvestor

Be very careful if you are considering surrendering any of the Endowments. By cashing them in early you would lose the Terminal bonus (bonus on maturity).

Not these days.If there is any terminal bonus left in the policy ( and often it has all gone) it will be paid pro rata to you when you surrender.It is true there may be a penalty, but this is included in the surrender value, and as readers can see, the cash return is still often better despite the penalty.

Unfortunately many endowments will not be able to perform as they did in the past even though stockmarkets have recovered, because they now have a lot of their money invested in bonds.I'm afraid that the days of large temrinal bonuses at maturity are over ( and in any case it's years since you had to wait till maturity to get the money).

billy_bulldog

Thanks EdInvestor, :T


If you cashed this in and put it in the bank @4% it should return around 11,363, which is not only less than the projection of 12,200 at 4% but also way below the guaranteed value of 18,531.


Are you saying then that the sum assured is guaranteed to be paid out upon maturity? I thought this was the figure that was only ever guaranteed to be paid upon death of the policy holder whilst the policy was still running?


bb

EdInvestor

Are you saying then that the sum assured is guaranteed to be paid out upon maturity? I thought this was the figure that was only ever guaranteed to be paid upon death of the policy holder whilst the policy was still running?

With a conventional WP policy the guaranteed sum assured plus declared annual bonuses are guaranteed to be paid out at maturity.

With a unitised WP policy there is no GSA, or guaranteed value and the sum assured as you say is a death benefit.

From what you say the first appears to be a unitised policy and the second conventional, but if there is doubt about this, ring up and check.

billy_bulldog

Thanks for all the pointers & useful comments. :T

I do plan to keep these running until full term, and just want to supplement them with something else. That way I will have options available to me in the future, whether or not the endowments perform as expected.

Cheers all!

:beer: